UPDATE 2-CEZ Q4 profit falls below forecast, but shares up

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By Jan Korselt

Central Europe's largest power company, CEZ , missed forecasts with a fall in fourth-quarter net profit, but its shares rose on solid operating performance and an improved outlook for 2007.

Net profit excluding minorities fell to 6.6 billion crowns ($307.7 million) from 6.9 billion a year ago and came below the average 7.3 billion forecast in a Reuters poll of analysts.

To a large extent, the drop was caused by higher tax duties and the fact that net profit in the fourth quarter of 2005 included a one-off gain related to goodwill, CEZ said.

Petr Novak, an analyst at brokerage Atlantik FT, said the results were not a negative surprise despite the lower net profit, which he attributed mainly to higher depreciation.

"We evaluate the CEZ results as neutral, because they confirm the positive impact of growing electricity prices on the firm's performance, and at the same time the company's ability to keep main cost items under control," he said in a report.

Fourth-quarter sales reached 45.9 billion crowns, above the 42.3 billion predicted by nine analysts.

Fourth-quarter earnings before interest and tax (EBIT) jumped 63 percent to 10.1 billion, a touch below the average forecast of 10.3 billion.

CEZ raised its full-year outlook for 2007 net profit before minority interests by 1.1 billion crowns to 35.1 billion.

Chief Financial Officer Petr Voboril said in a statement the improved outlook was mainly due to better operating reliability of CEZ's sources, including the Temelin nuclear power station, which had often been down due to technical glitches.

Electricity production in the fast growing Czech economy has been rising, helping CEZ's output.

Sales Director Alan Svoboda told a news conference he expected output to rise 3.1 percent this year on a like-for-like basis.

PRICE GROWTH, ACQUISITION HELP BOTTOM LINE

CEZ shares rose 1.5 percent to 884.5 crowns on Thursday, beating the Prague PX index, up 0.51 percent at 1051 GMT, and the DJ European Utilities index , which gained 0.31 percent.

The stock had dropped 8 percent in recent days as some investors worried about lower electricity prices in Germany.

Full-year 2006 net profit, excluding minorities, rose 29.2 percent to 27.7 billion crowns, lagging the forecast of 28.4 billion. Full-year sales rose 27.6 percent to 159.6 billion. "The principal factors driving the growth were: higher gross margin on production and sales as a result of record output from CEZ generating plants, growth in wholesale prices, and successful optimising of carbon dioxide permits and the sale of the resulting surplus," the company said on the full-year results.

CEZ said it made 3.5 billion crowns by selling surplus pollution permits last year, up from 1.1 billion a year ago, before prices on the market collapsed.

Another factor in its profit growth was inclusion of CEZ's newly acquired foreign holdings in the Balkans and Poland.

CEZ confirmed its standing dividend policy of paying 40 to 50 percent of the net profit to shareholders. ((Writing by Jan Lopatka, editing by Jane Baird; prague.newsroom@reuters.com; Reuters Messaging: jan.lopatka.reuters.com@reuters.net; +420-224 190 474; editing by Jane Baird))

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Keywords: CEZ RESULTS/

[PRAGUE/Reuters/Finance.cz]